MUMBAI : The Reserve Bank of India announced on Monday another series of liquidity measures to allay market fears about rising yields and the higher loan program. The central bank increased the hold-to-maturity (HTM) limit, or the amount banks invest in government securities, from 19.5% to 22%. It also announced additional open market operations for value ₹Rs 20 billion and value term repo transactions ₹1 trillion to infuse liquidity in the market.
In order to reduce the cost of funds for banks, the RBI also allowed them to exchange funds raised in long-term buyback operations (LTROs) at 5.15% with the new funds available under the ₹Buyback window of 1 trillion at 4%.
In its press release, the RBI said that market sentiment has been affected by concerns regarding the inflation outlook and the fiscal situation amid global events that have strengthened overseas yields.
“RBI is ready to conduct market operations as required through a variety of instruments to ensure the orderly operation of the market,” he said.
The central bank also assured that the RBI remains committed to using all the instruments at its disposal to reactivate the economy while maintaining pleasant financial conditions, mitigating the impact of covid-19, and restoring the economy to a sustainable growth path while preserving macroeconomic stability. and financial. He also assured that the government indebtedness program of the Center and the States for the year 2020-21 will be completed in a non-disruptive manner.
The liquidity measures come at a time when the auction of 10-year government securities (G-sec) to raise ₹Rs 18 billion was almost fully repaid. This was the second time in a row this month that the 10-year paper received no interest from buyers, forcing primary distributors to absorb the amount.
Over the past four weeks, yields have risen 36 basis points on concerns that retail inflation could surpass 7% in three months, even as the economic recovery lags.
The Monetary Policy Committee (MPC) in its statement on August 6 said that headline inflation could remain high in the second quarter, however, it would moderate in the second half. He also noted that food and fuel prices are stabilizing and cost drivers are moderating. The recent appreciation of the rupee is also likely to have an impact on imported inflationary pressures. With all this in mind, the MPC decided to pause and remain vigilant and use the available space judiciously to support the recovery of the economy.
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